Malloy's budget plan would be costly for L+M, Backus

The region’s two hospitals are bracing for a possible increase in state taxes over the next two years, after the Connecticut Hospital Association assessed the impact of Gov. Dannel P. Malloy’s proposed budget, estimating it would add $156 million to the tax burden of all the state’s hospitals over the next two years.

“The new formula for calculating the hospital tax represents a significant impact to Hartford HealthCare,” the parent of The William W. Backus Hospital in Norwich, spokesman Shawn Mawhiney said Tuesday. “We estimate this would add $15 million of new cost annually, on top of the $52 million a year in new property tax payments we would pay under the governor’s budget plan.”

On top of taxes the hospital network already pays, Hartford HealthCare’s total state tax liability would be $187 million, Mawhiney said.

Vincent Petrini, spokesman for Yale New Haven Health, the network that includes Lawrence + Memorial Hospital in New London, said the impact of the entire system is an estimated $30 million increase over this year’s state tax liability. The specific amount that would be borne by L+M is still being calculated, Petrini said.

The hospital association on Friday shared its analysis of Malloy’s budget with its 27 member hospitals. According to the analysis, state tax increases, along with a separate Malloy plan to allow municipalities to levy property taxes on hospitals, would add about $580 million in new taxes to the hospitals over the next two years. The analysis was given in preparation for a public hearing at noon Thursday before the state Legislature’s Human Services Committee. The hearing, in Room 2C of the Legislative Office Building, will consider one of the pending bills that would implement the governor’s budget plan.

Malloy’s proposal would also eliminate an $11.8 million grant pool for small hospitals. In addition, the governor’s proposal would reduce the numbers of people eligible for Medicaid coverage, leaving the hospitals with more bad debt, and would change the way the hospital tax is calculated so that hospitals would end up paying more, the hospital association said.

Currently, the 27 hospitals pay a combined state tax of $556 million. That would rise to $623 million in fiscal 2017, and $625 million in fiscal 2018-2019 under the governor’s plan, according to the hospital association.

The governor’s office, however, is disputing the hospital association’s figures. Chris McClure, spokesman for the state Office of Policy and Management, said the hospital association has not shared the basis for its analysis with OPM, and that its own review of the numbers comes to a much different assessment of the impact.

Benjamin Barnes, OPM secretary, defended the proposal, citing two lawsuits by the hospital association pending in state courts. The lawsuits are challenging the hospital provider tax and the reimbursement rates paid by the state for care of Medicaid patients.

“The governor’s legislative program includes, in the finance implementer, language strengthening the existing hospital tax,” Barnes said in a statement. “This proposal is, in part, a reaction to the multi-billion dollar litigation by the hospital association challenging the validity of the existing tax statute. While we firmly stand behind the existing statute and expect to prevail in any litigation, we routinely work to clarify tax statutes when legal issues are raised.”

He said the change proposed in the hospital tax uses more revenue data.

“Our analysis prior to the governor’s budget release was that the more current data would produce a slightly higher amount of revenue, but nothing like the estimates of the CHA,” he said. “If the hospitals’ revenues are indeed rising so much more quickly than we expected, then the legislature can either adjust the rate or use the additional revenue. One course of action that I do not recommend is to do nothing. Unless the legislature is prepared to repeal the provider tax, it should take every opportunity to ensure that it is legally strong, clear to taxpayers and the public, and fairly administered.”

The hospital provider tax was first imposed on hospitals in 2011 as a means of leveraging more federal Medicaid dollars. That year, the state collected $350 million in taxes on hospitals, and returned $400 million to them in supplemental payments. Since then, however, the supplemental payments have been reduced substantially. Now, hospitals get back just $117 million on the $556 million they pay in state taxes.

The governor’s budget plan would also cut the state’s payment in lieu of taxes, or PILOT, funds paid to municipalities that host nonprofit hospitals. The state currently pays cities and towns about 75 percent of the assessed value of hospital property.

Under the plan, municipalities would be able to tax hospital property. To offset the local property taxes, hospitals would receive $250 million in supplemental payments from the state that would be used to leverage additional Medicaid reimbursements to the state, according to the proposal.

The hospital association and its members, however, oppose the property tax change, citing its previous experience with diminishing supplemental payments and uncertainty about the future of Medicaid under the Trump administration.

Information from an article by the Connecticut Mirror was included in this article.

j.benson@theday.com

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